Canada Markets

Canola Futures and Basis Weaken

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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After gaining $30/metric ton in the second half of March, July canola closed below the 67% retracement of this move at $460.60/mt, despite prices seen in oversold territory, as seen in the first study. The lower study shows noncommercial traders increasing their bearish net-short position in canola for the first time in seven weeks as of April 14. (DTN ProphetX chart)

July canola closed $3/metric ton lower in Monday's trade, a third consecutive lower close while breaching the 67% retracement support of the move from the March 16 low of $452.20/mt to the March 31 high of $482.20/mt, calculated at $462.10/mt. This move may have cleared a path for a return to the March 16 low of $452.20/mt.

Prices struggled with support over the past five sessions, bouncing from the 61.8% retracement level of $463.70/mt in April 14 trade, while finally closing below this support on April 17. April 20 trade dealt a further blow with a close below retracement support, while also reaching the lowest level seen in four weeks, which is a bearish technical signal in itself and a sign of a change in direction.

The red bars on the lower histogram shows the CFTC noncommercial net-short position for canola, with this position growing from 41,660 contracts to 41,951 contracts in the week-ending April 14, the first time in seven weeks that this bearish position has grown and clearly a signal of increasingly bearish actions on the part of investors. It will be interesting to see if this stance is maintained when Friday's data as of April 21 are released, given the favorable pace of export movement begin reported in recent weeks.

While not shown, last week's price data shows a bearish combination of weaker futures and weaker basis reported over the past week. While the May contract gave up $7.40/mt last week, cash prices across the nine regions of the Prairies fell from $6.18/mt to $12.81/mt, while averaging $9.11/mt lower. The southwest Saskatchewan bid faced the largest decline over the week. Cash prices for April 20 fell by an amount close to the $3/mt drop in the future across eight of the nine regions, although the cash bid for southwest Saskatchewan shows a $4.60/mt drop in price.


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